Last week, prices for old crop corn reached their highest level since February, then wasted little time retreating. It was another failed rally, something that has been consistent since October.
July corn futures reached a six-week high on Tuesday, and by Friday, dropped to their lowest level in a month. New crop December did the same, closing at its lowest price since July of last year. Wheat and soybeans were weaker as well.
All the uncertainty with Northern Hemisphere crops lies ahead. So far this spring, many have experienced less-than-ideal weather. All this while the market is retreating, anticipating that an El Nino pattern will deliver prospects of better crops. Additionally, strained relations with China coupled with U.S. prices that are not as competitive as Brazil and elsewhere are making it difficult for bullish traders.
Inflation, interest rates, and high prices are keeping end users buying on a hand-to-mouth basis. In other words, they are willing to take the risk that world supplies will increase in 2023 and at least, for now, don’t see a need to buy ahead aggressively. That might change, should weather be an issue. However, it is too early to equate yield or acreage losses to recent wet and cold conditions.
Growers are concerned this could be a year of financial losses. With new crop prices at levels that are not all that attractive considering input costs, frustration is growing. Many, understandably so, don’t want to sell much now, for fear they will sell too soon. Still, history suggests that prices rarely bottom in spring, so the decision to do nothing is also eating away at their patience and bottom lines.
Buyers, however, are arguing that higher costs, inflation, and higher interest rates are also keeping them from securing supplies beyond what is currently needed. They need cheaper products. With no supply shock (weather or otherwise) on the horizon, they will likely continue to buy as needed.
The implications of higher-priced commodities (based on history versus breakeven) favor the end user. Why? Producers of commodities have an army of support to produce large crops. Technology, genetics, tillage practices, and farmers’ determination favor betting on production.
Demand can be fickle. It can change from aggressive (low prices and fear of limited supplies) to passive, (high prices and expectations for more supply). The export market and increased production from Brazil favor the latter. The corn chart resembles a slow and steady downtrend since October. Rallies have been met with resistance rather than increased buying. Managed money reduced positions significantly during mid-winter and went net short the wheat market.
From a marketing perspective, current price levels are not overly attractive for producers to lock in through forward contracting. However, the flexibility of hedging with futures or purchasing put options should be considered. The ability to lift hedges at any time does not tie you to a locked price or delivery. Put options require a fixed-risk premium to establish a price floor, leaving unpriced grain able to participate in a price rally. Chart indicators suggest December corn futures could move toward sub $5.00.
Prepare yourself for any scenario of market movement. Consider strategies that best fit your risk tolerance. Talk to a professional and understand your risks and rewards before entering into any position.
Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
